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How Much Money Can I Make?

How Much Money Can I Make?

While we may have different political views or opinions on whether ketchup is a food group, one thing unites us all.  We want to be in business to make money.

It’s logical then, that we want to know what kind of profits can be made for a business we’re interested in.

Remember: The great thing about investing in a business is not only do you have monthly cash flow, you also own an asset that can increase in value and later be worth a lot more than you paid for it.

Laundromats have a particularly appealing formula:

  • Customers put money in the machines
  • Money is collected from the machines
  • Money is deposited in the bank
  • Bills are paid
  • What’s left is PROFIT
  • …and the cycle starts again

The amount of profit that can be made is clearly going to vary,  based on several different factors.  Size of the laundry, how busy the laundry is, expenses such as utilities, etc.

A rule of thumb in the self-service laundry industry is that profit is usually about 25% of gross income.

So if a laundry is pulling in $20,000 per month in gross income from all sources (wash/dry/vending/etc), then you can estimate that it brings in approximately $5,000 in profit each month (assuming the store is well-managed).

A small laundry could do about $10,000 in gross revenue a month, a middle-size store would be closer to $20,000 a month in gross revenue, while a very large store could pull in as much as $40,000 a month or more.  Profit estimates for those stores would be around $2,500…$5,000…and $10,000, respectively.

When you’re analyzing a potential laundromat for purchase, not only are you concerned with verifying the income, but the monthly expenses are just as important.  $20,000 per month in gross income can sound fantastic until you find out that expenses total up to $19,500 ($500 profit), or worse, total up to more than $20,000 (no profit at all, or a loss).

During your review of expenses, you want to pay very close attention to those that represent the largest share.  These are usually: Rent + CAMs, Labor, Sewer fees and Utilities.

Some ballpark figures…

  • Rent/Mortgage should be no more than 25-30% of gross income
  • Labor should be no more than 10% of gross income
  • Utilities should be around 25% of gross income or less
  • Sewer fees vary widely from one county or state to the next. But these costs can be verified by reviewing the sewer bills directly or on an itemized rent statement.

In order to determine if your target laundry is in line with industry standard, we suggest you first obtain monthly gross income from the seller for the prior two years.

And it’s important to note that laundry incomes are seasonal; busier in the colder months, less so in the warmer months.  Don’t let the seller base their quoted income on just a single month, the picture can be much different when averaged out across the entire year.  So ask for historical monthly income figures and then get the average across all months to arrive at an average monthly income figure.

Then obtain an itemized expense report from the seller, looking for recent figures for these categories:

  • Rent + CAM charges
  • Property Taxes
  • Sewer Fees
  • Electric
  • Gas
  • Water
  • Insurance
  • Janitorial Labor
  • Security
  • Trash
  • Vending Expenses
  • Repairs and Parts
  • Telephone
  • Internet

Always verify with billing statements when possible.  Electric, gas, water and rent statements should all be made available by the seller at a minimum.  Review the rules of thumb listed above, and determine if any expenses appear to fall outside the general guideline.  Those that do should be investigated more closely to determine why.

Finally, subtract the monthly expenses from the average monthly income, to determine what kind of profit the store is making.  This figure is the Net Income.   If you’re financing the business purchase, you would then also need to subtract any loan payments from the net income, and that will give you your monthly Cash Flow estimate.

 

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About Laura Dobbins

Laura is the founder and co-creator of Laundromats101.com, and owner of two laundromats in the Sacramento area.  She’s a math geek (Calculus III was a breeze), and currently works as an Analytics Manager in the Healthcare Finance sector.  When she’s not busy analyzing something, she loves cooking French food and blogging.

 

net_income_calculatorFor help in this area, we’ve created a Net Income / Cash Flow Analyzer template that will help you estimate these figures, which are critical before buying any business.  It even alerts you when  expenses are above the industry average.

Available NOW in our ONLINE STORE!

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